I received an email this week from someone who is in the throes of a negotiation for a small food service business. He came across the Diomo website (www.diomo.com ) while searching business listings and sent me a question (I am always happy to answer these so if you have any questions, contact me). He and the seller have settled on a $600,000 purchase price. Deal terms are $200,000 down and the seller has agreed to carry a $400,000 note over 6 years at 9%. Sounds good so far, doesn't it?
I can't state whether it's a good business to buy because he omitted too many details, except that the company has experienced consistent revenues and Owner Benefits in the $200,000 - $250,000 range over the past three years. At face value, it looks very good but here's the problem: the seller wants the buyer to personally guarantee the note and the buyer steadfastly refuses to do so. The business has zero assets except inventory and some office equipment.
I think the buyer was shocked when I sided with the seller.
In this case, there is no personal collateral being pledged. On this point, you should not pledge personal collateral in a seller note; the assets of the business are enough. However; executing a promissory note including a personal guarantee makese perfect sense.
I don't want to be the conveyer of doom and gloom. Good businesses, run by the right people, rarely fail. That is not the point of this posting. Rather,
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